Research On Principal-Agent Problem In Contacting Out Of Public Service

Contracting out of public services is that the mechanism of marketcompeting intervenes in the provision of public services, public goods andservices are produced by private sector not by government. Governmenttransfers the function of public services production to private services throughcontract. At present, many countries in the world adopt contracting out toreduce government expenditure, hold back the size of government, improve thequality of public services. Although the study to contracting out has becomefocus of western public administration, it is blank in our country.Based on principal-agent theory, this paper analyzes the principal-agentproblems and relative choosing mechanism, incentive-restraint mechanismand supervision system in contracting out of public services system. It alsoillustrates the ways to design these mechanisms of principal-agent problems.On this basis, a countermeasure research is carried out to solve theprincipal-agent problems.At the beginning of the paper, it gives an illustration of principal-agentrelation theory. This theory thinks, the information between the client withownership and agent with power of management is distributed asymmetrically.Agent has more information than the client, which results in client adverseselecting agent and agent's moral hazard. However, solving the principal-agentor the keys of problem to set up a set of rational allocation of choosing,incentive-restraint and supervision mechanism, thus to impel the agent to takethe proper action, promote the client's interests to the maximum extent. Thenthe article illustrate the problems resulted from contracting out of publicservices. Through studying the general model, a specific plan of solvingprincipal-agent problem is suggested. First, building scientific choosingmechanism. In this section, this paper analyzes the problem of biding andconstructs a model of appraising bidders by gray-relating theory. Second,designing an effective incentive and supervision mechanism. Throughanalyzing the principle of designing incentive and supervision model, it givesspecific incentive and supervision methods. At last, this paper has a summarizefor solving the principal-agent problems in contracting out of public services.